Interest rates pulled back from record levels this week, although cardholders may not have much reason to cheer.
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|CreditCards.com’s Weekly Rate Report|
|Avg. APR||Last week||6 months ago|
|Methodology: The national average credit card APR is comprised of 95 of the most popular credit cards in the country, including cards from dozens of leading U.S. issuers and representing every card category listed above. (Introductory, or teaser, rates are not included in the calculation.)|
The national average interest rate on new credit card offers fell nearly a quarter-point to 14.39 percent, according to the CreditCards.com Weekly Credit Card Rate Report, falling from the highest level since tracking began in 2007. It is just the second time in 2010 that annual percentage rates (APRs) have dropped, and it was due to the decision of one subprime card marketer to eliminate a card offer with a rate of nearly 60 percent.
First Premier, which targets customers with poor credit, decided to pull its Gold MasterCard following a trial. “We used it as a test, and we are analyzing the long-term viability of this product test,” says First Premier spokeswoman Amy Durbin. Since that card had such a high interest rate — 59.9 percent — its removal alone pushed the national average interest rate lower.
The decline would have been even steeper, but it was offset somewhat by rate increases by other card issuers.
Comerica boosted the APR on its Visa card offer, while Citi raised interest rates on two of its gas card products. Citi said its term changes are the result of both higher losses from delinquent customers and the new restrictions from the Credit CARD Act of 2009 on the repricing of existing card accounts.
Although the new law restricts banks from implementing surprise rate hikes on existing balances, it doesn’t address new offer APRs — which are the rates tracked by CreditCards.com.
Those APRs have increased over recent months, as banks aim to replace revenues generated by practices that the CARD Act outlaws. The changes by lenders have made it more expensive for new cardholders to carry a balance. For example, someone who borrowed $5,000 on a credit card today and consistently paid $150 per month at today’s average interest rate would have to pay $6,423 to pay off the debt. That’s $293 more than would have been required six months earlier. (Calculator: How long will it take to pay off your credit card balance?)
The banks acknowledge that cardholders may not be happy about these higher costs, but they say that consumers do have options. “We have communicated these changes in a clear and transparent way,” says Citi spokesman Samuel Wang. “Every customer had the choice to opt out and pay off the existing balances over time at their current rate.”
Just how aggressively cardholders have been paying off these balances will be revealed on Friday, when the Federal Reserve’s consumer credit report for January shows the direction of card balances during the first month of 2010.
See related: Credit card reform arrives in the form of the Credit CARD Act, A guide to the Credit CARD Act of 2009, What’s NOT covered by the credit card reform law, Calculator: How long will it take to pay off your credit card balance?, Fed report: Consumer credit card balances keep plummeting, Interactive: Historic credit card rates